GST/HST Ruling

Dear XXXXX

I refer to XXXXX  letter dated October 20, 1998, addressed to XXXXX and our telephone conversation on January 7, 1999, concerning the tax status for GST/HST purposes of services supplied by your firm's client, XXXXX  XXXXX[.]

Statement of Facts

The following facts have been obtained from previous correspondence between the Department and your firm and between the XXXXX[.]

1. XXXXX[.]

2. XXXXX is a XXXXX[.]

3. On May 1, 1995, XXXXX for its XXXXX operations XXXXX entered into an agreement with XXXXX, an unregistered non-resident, to promote and market information programs in Canada. Section 3.1 of the agreement states that XXXXX Canada will:

•   use its best endeavours to advertise and promote the information programs subject, however, to the specific prior approval in writing in all cases of XXXXX the form, manner, extent and wording of such advertising and promotion and shall be responsible for all expenses incurred for such advertising and promotion;

•   give to XXXXX all information which XXXXX may reasonably require in respect of the promotion of the information programs; and

•   conduct all promotional activities in accordance with the highest business standards and not perform any act which will or may affect adversely upon the business integrity or goodwill of XXXXX or the image or reputation of the managed service bureau telecommunications facilities operated by XXXXX[.]

4. Section 4.1 of the agreement states that XXXXX will be paid for its services based on the usage per minute of the information programs by the callers based on the rates specified in Schedule I to the agreement.

5. The programs offer a variety of information, including dental health, eye care, cosmetic surgery, horse race results, cooking recipes, local XXXXX events, weather reports, ghost stories XXXXX[,] etc.

6. Callers from Canada access the information over the telecommunications network of XXXXX whose principal activities are the provision of telecommunications services.

7. XXXXX operates XXXXX facilities which enable callers from designated countries outside XXXXX to access information over the telecommunications network of XXXXX offers the information programs through the XXXXX facilities and earns its revenue from the international carrier responsible for the transmission of the (last "leg" of the) call into XXXXX[.]

8. XXXXX has marketed and promoted XXXXX information service through advertisements that have appeared in newspapers, direct mailings, television and radio.

9. The information programs are offered as part of XXXXX long distance telecommunications services. For example, the brochure dealing with XXXXX "XXXXX for its customers. These numbers allow the XXXXX customers to access XXXXX information programs offered by XXXXX[.]

10. There is no separate charge to the caller for accessing the information programs. Rather, the caller will incur the normal long distance charges (which may be 0¢ per minute) through its long distance service provider which, in this case, is XXXXX[.]

11. On November 28, 1997, a GST application ruling was issued to your firm's client by the XXXXX XXXXX[.]  The ruling stated that XXXXX is making a taxable supply of a promotional or marketing service to XXXXX[.]  The ruling further stated that this supply does not qualify for zero-rating under the provisions of Schedule VI, Part V, section 7 to the Excise Tax Act (Act) but is subject to the GST at 7%.

12. On September 25, 1998, the XXXXX XXXXX[.]  Revenue Canada issued a ruling to your firm stating that XXXXX is making a supply of an information service (rather than a supply of a promotional or marketing service) to XXXXX and that this supply is subject to the GST at 7%. The ruling also stated that the service supplied by XXXXX does not qualify for zero-rating under Schedule VI to the Act.

Rulings Requested

A. The service supplied to XXXXX by XXXXX is zero-rated under the provisions of Schedule VI, Part V, section 5 to the Act.

B. The service supplied to XXXXX by XXXXX is zero-rated under the provisions of Schedule VI, Part V, section 7.

C.The service supplied to XXXXX by XXXXX  is zero-rated under the provisions of Schedule VI, Part V, section 8 to the Act.

Rulings Given

Based on the facts set out above, the following rulings are provided:

A. The promotion and marketing service (i.e., advertising service), as outlined in section 3.1 of the agreement, supplied to XXXXX by XXXXX, does not qualify for zero-rating under the provisions of Schedule VI, Part V, section 5.

B. For the period May 1, 1995, to June 30, 1996, the advertising service, as outlined in section 3.1 of the agreement, supplied to XXXXX by XXXXX does not qualify for zero-rating under the provisions of Schedule VI, Part V, section 7. However, effective July 1, 1996, the supply of the advertising service qualifies for zero-rating under the provisions of Schedule VI, Part V, section 7.

C. The advertising service, as outlined in section 3.1 of the agreement, supplied to XXXXX by XXXXX qualifies for zero-rating under the provisions of Schedule VI, Part V, section 8.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under objection or appeal, that there are no relevant changes in the future to the Act or to departmental interpretative policy, and that you have fully described all necessary facts and transactions for which you requested a ruling.

A copy of this letter is being forwarded to Mr. XXXXX for his information.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Garry L. Ryhorchuk
Technical Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Dear XXXXX

Thank you for your letter of December 2, 1998, received by facsimile, and your subsequent letter dated December 22, 1998, together with the relevant agreements, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below.

Statement of Facts and Transaction(s)

From the written material we received from you as well as from our various telephone conversations, our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

1. XXXXX  is a resident Canadian corporation which is registered for GST/HST purposes by number XXXXX[;]

2. XXXXX  is also a resident Canadian corporation which is registered for GST/HST purposes by number XXXXX[;]

3. XXXXX  XXXXX has assumed all of the assets and liabilities of XXXXX. All references to XXXXX  will henceforth be to XXXXX[;]

4. XXXXX is a corporation incorporated and XXXXX  XXXXX[;]

5. XXXXX  is a corporation incorporated in the XXXXX  XXXXX  is resident in the XXXXX, and is a wholly owned subsidiary of XXXXX[;]

6. XXXXX  is a related corporation of XXXXX[;]

7. XXXXX  is issuing purchase orders to XXXXX  for temporary personnel services;

8. XXXXX (the "Agreement"), is a legally binding agreement executed between XXXXX pursuant to the laws of the XXXXX  XXXXX  as amended from time to time. Both XXXXX  XXXXX have agreed and continue to agree to be legally bound by the XXXXX  and for it to govern their business and financial transactions for the hiring of temporary workers, even though neither XXXXX[;]

9. XXXXX  is not acting in the capacity of agent for XXXXX or any other XXXXX  as defined in the XXXXX[;]

10. XXXXX  is acting in the capacity of agent for XXXXX and has the express and unlimited power and authority, pursuant to the Agreement, to bind XXXXX  which power and authority has not been revoked XXXXX[;]

11. In response to the issuing by XXXXX of purchase orders, individuals have been hired by XXXXX their capacity as agent for XXXXX and assigned to XXXXX on a temporary basis for work to be performed entirely XXXXX n XXXXX[;]

12. The XXXXX  administrative and management support of this project, including human resource management was and continues to be substantially performed at XXXXX  XXXXX[;]

13. The actual purchase order(s) for the temporary personnel services for the XXXXX  project have been issued by XXXXX, which is located in XXXXX  on behalf of XXXXX  XXXXX  is responsible for the management of the work performed in XXXXX  and staff located at XXXXX have responsibility for the management of this project including the temporary personnel supplied by XXXXX[;]

14. XXXXX of business of XXXXX consisting of a place of management with offices and a manufacturing facility, so as to constitute a permanent establishment as defined by subsection 123(1) of the Excise Tax Act (the "ETA");

15. The invoice(s) for the temporary personnel services, which have been and may continue to be issued in response to the XXXXX purchase order(s), are sent by XXXXX  to XXXXX rather than to XXXXX in XXXXX  for payment. The XXXXX payment system is not set up to capture the GST in order to capture input tax credits. Therefore XXXXX  pays the full amount of the invoice including the applicable GST and the GST portion is billed intercompany to XXXXX in XXXXX, where it is placed in the account set up to capture the GST input tax credits.

Ruling Requested

1. Whether the supply of personnel services by XXXXX  to XXXXX  pursuant to the XXXXX which commenced by the issuing of purchase orders by XXXXX to XXXXX or work performed by temporary personnel entirely in XXXXX, is subject to GST; and

2. If so, whether the method used by XXXXX to recover the input tax credits, as described above, is suitable to Revenue Canada.

Ruling Given

Based on the facts, the transaction(s), and the purpose of the transaction(s) set out above, we rule as follows:

1. The supply of personnel services by XXXXX to XXXXX  pursuant to the XXXXX  which commenced by the issuing of purchase orders by XXXXX XXXXX for work performed by temporary personnel entirely in XXXXX is subject to GST at the rate of zero percent on the value of the consideration for this supply by virtue of section 7 of Part V of Schedule VI to the ETA.

Comments

2. It is not the responsibility of the GST/HST Rulings and Interpretations Directorate to make a determination as to whether a given method of internal corporate accounting used by XXXXX to recover the input tax credits is suitable to Revenue Canada. This is the responsibility of the Audit Directorate of Revenue Canada.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-2560.

Yours truly,

Richard Aronoff
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Encl.:

Dear XXXXX

This is in reply to your letter of December 15, 1998, with attachments, which was forwarded to us from the XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of contact lens blanks.

Statement of Facts

On the basis of the information provided, our understanding of the facts is as follows:

1. XXXXX is a non-resident importer of prescription soft contact lenses and semi-finished XXXXX contact lens blanks. XXXXX ships to several Canadian contact lens laboratories, hospitals, and practitioners.

2[.] XXXXX has recently received invoices indicating that GST is due on the XXXXX contact lens blanks.

3. XXXXX contact lens blanks are of unique design with specific elements incorporated that eye care practitioners prescribe for their patients. The patient requires certain prescription parameters to correct the impaired vision, and the XXXXX lenses have several of these prescription parameters already manufactured into the lens blank. XXXXX manufactures various XXXXX contact lens materials, in blank form, that have some or all of the following prescription parameters built into the lens blank:

a) different Dk values to tailor oxygen transmissibility to the eye;

b) Refractive Index and Specific Gravity which are variables that affect the positioning and thickness of the finished contact lens; and

c) UV (Ultraviolet) absorber.

4. XXXXX supplies three types of XXXXX contact lenses: XXXXX[.] All three are available as the lathe cut or molded firm contact lenses as well as with or without an ultraviolet absorber.

5. XXXXX[.] They are available in spheric, aspheric multifocal, toric, bitoric, and bifocal designs. Daily wear and extended wear lenses are available with spherical front and back surfaces in clear and tinted versions. The posterior curve is selected so as to properly fit an individual eye and the anterior curve selected to provide the necessary optical power to correct refractive error. These lenses are available in clear and tinted versions.

6. XXXXX materials with higher oxygen delivery. These lenses are available in spheric, aspheric multifocal, toric, bitoric, and bifocal designs. Daily wear lenses are available with spherical, aspheric, bifocal, or toric anterior, posterior, or bitoric surfaces in clear and tinted versions. The extended wear lenses are available with spherical or aspheric anterior or posterior surfaces in clear and tinted versions. The posterior curve is selected so as to properly fit an individual eye and the anterior curve selected to provide the necessary optical power to correct refractive error.

7. XXXXX[.] These lenses are available in spheric, aspheric multifocal, toric, bitoric, and bifocal designs. They are available for daily wear only, and are with spherical, aspheric, bifocal, or toric anterior and posterior, or bitoric surfaces in clear and tinted versions. The posterior curve is selected so as to properly fit an individual eye and the anterior curve selected to provide the necessary optical power to correct refractive error.

8. XXXXX contact lens blanks have only been approved by the XXXXX for prescription use, they have not been approved for alternate uses such as cosmetic purposes.

Ruling Requested

You are requesting a ruling on the application of the GST/HST to the supply of XXXXX[.]

Ruling Given

Based on the facts set out above, we rule that the supply of the XXXXX blanks when imported into Canada are subject to the GST at 7% or, as explained below, if they are imported into a participating province, the XXXXX blanks are subject to the HST at 15%.

On April 1, 1997, the HST replaced the GST and the provincial sales tax in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. Goods that are delivered or made available in a participating province, and services performed in a participating province, to the extent they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Under the GST/HST system, the supply of goods and services is taxable at rates of 15%, 7%, or 0% (zero-rated), or they may be exempt from tax. Zero-rated supplies are listed in Schedule VI and exempt supplies are listed in Schedule V of the Excise Tax Act (the "ETA").

Section 9 of Part II of Schedule VI to the ETA provides a zero-rated GST/HST status for the supply of the following:

"A supply of eyeglasses or contact lenses when the eyeglasses or lenses are supplied on the written order of an eye-care professional for the treatment or correction of a defect of vision of a consumer named in the order where the eye-care professional is entitled under the laws of a province in which the professional practises to prescribe eyeglasses or contact lenses for such purpose."

Under this provision, the supply of corrective contact lenses is zero-rated when supplied under the written order of an eye-care professional to treat or correct a defect of vision of a consumer named in the order. This zero-rated status is only available when the supply is made where there is acceptable evidence of the written order. Where a person purchases corrective contact lenses or contact lens blanks for inventory, the supply would be subject to the GST/HST at 7% or 15%.

We understand that when "soft" contact lenses are supplied, the lenses are manufactured for a specific prescription. On the other hand, contact lens blanks require finishing by a laboratory. Therefore, the supply of contact lens blanks which do not yet have corrective properties incorporated into them is subject to the GST/HST at 7% or 15%, regardless of whether the lens blanks contain some prescription parameters.

Section 32 of Part II of Schedule VI to the ETA provides a zero-rated status to a supply of a part that is specially designed for a property described in that Part, such as prescription eyeglasses described in section 9. In order for an item to fall within section 32, it must first be a part and second be specially designed for use in prescription eyeglasses. Please note that in order to be a "part", the good must be an identifiable and integral constituent component of a larger entity. A contact lens cannot be considered a part for itself regardless of whether it needs further finishing. It is not an identifiable and integral constituent component of a larger entity. Therefore, contact lens blanks are not a zero-rated part for the purposes of section 32.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division

Dear XXXXX

Thank you for your letter of November 2, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of advertising an service on your internet website. We apologize for the delay in responding to your request.

Statement of Facts

Our understanding of the facts from your letter and our telephone conversation is as follows:

1. XXXXX is a registered charity under the Income Tax Act and also a registrant for GST/HST purposes.

2[.] XXXXX recently started a website on the internet to provide information on its society and information on XXXXX in general.

3. The website is located in XXXXX[.]

4. XXXXX plans to solicit advertising on its website to help cover the cost of maintaining its website.

5. The type of advertising offered can be in the form of a site logo with a link to the advertiser's website, a site rotating banner or an exclusive page sponsorship.

6[.] XXXXX stipulates the format, i.e. space available, type of electronic format that can be used on its website.

7[.] XXXXX clients are scientific instrument companies in the XXXXX[.]

Ruling Requested

1. What is the tax status of the supply of the advertising service made through the XXXXX website when supplied to a non-resident person who is not registered for GST/HST purposes?

2. What is the tax status of the supply of the advertising service made through the XXXXX website when supplied to a non-resident person who is registered for GST/HST purposes?

3. What is the tax status of the supply of the advertising service made through the XXXXX website when supplied to a Canadian resident?

Ruling Given

Based on the facts set out above, we rule that:

1. The supply of the advertising service made through the XXXXX website to a non-resident person who is not registered for GST/HST purposes at the time of supply is a zero-rated supply.

2. The supply of the advertising service made through the XXXXX website to a non-resident person who is registered for GST/HST purposes at the time of supply is a zero-rated supply.

3. The supply of the advertising service made through the XXXXX website to a Canadian resident is an exempt supply.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act (the ETA), or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

1. Generally, a supply of a service made by a charity is exempt from GST/HST by virtue of section 1 of Part V.1 of Schedule V to the ETA. However, certain supplies of services made by a charity are specifically excluded from this general exemption such as supply of a service that is zero-rated under Schedule VI to the ETA. In particular, section 8 of Part V of Schedule VI to the ETA zero-rates a supply of an advertising service that is made to a non-resident person who is not registered for the GST/HST at the time the service is performed. A zero-rated supply if taxable at the rate of 0%.

2. Section 8 of Part V of Schedule VI does not apply in the case of a supply of an service made to a non-resident person who is registered for the GST/HST at the time the supply if performed. However, under the general zero-rating provision concerning the export of services found in section 7 of Part V of Schedule VI to the ETA, a supply of an advertising service made to a non-resident person who is registered for the GST/HST at the time the service is performed is also zero-rated.

It should be noted that section 7 does not apply when the non-resident person is an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply of the service, or, when the advertising service is supplied to an individual while that individual is in Canada.

3. As mentioned previously, section 1 of Part V.1 of Schedule V to the ETA generally exempts all supplies of services made by a charity to the extent that they are not zero-rated or otherwise excluded from this exempting provision. As a supply of an advertising service made by a charity to a Canadian resident is not a service that is excluded from this exempting provision, it will be exempt for GST/HST purposes.

For further information, please find enclosed the guide entitled "GST/HST Information for Charities".

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations & Border Issues Division
GST/HST Rulings and Interpretations Directorate

XXXXX

HQ letters:

Analysis:

A registered charity has a website on the internet. The website is located in XXXXX XXXXX[.] They are registered for the GST/HST. They plan to solicit advertising to help cover the cost of maintaining their website. Advertising is to come from scientific instrument companies in the XXXXX and perhaps other XXXXX[.] They have asked if the provision of advertising through a website on the internet is taxable supply under the GST/HST.

The issues that arise are:

1. Where is the supply made, if in Canada, it would be a taxable supply unless otherwise exempt.

2. If the supply is made in Canada to a non-resident person, it would be zero-rated in accordance with section 7 of Part V of Schedule VI to the ETA provided that none of the exclusions outlined in paragraphs (a) to (h) apply.

3. If the supply is made in Canada to a non-resident person who is not a registrant at the time the service is performed, it would be zero-rated in accordance with section 8 of Part V of Schedule VI to the ETA.

4. If the supply is made in Canada by a registered charity to a resident and the supply is not otherwise zero-rated, it will be an exempt supply by the charity pursuant to section 1 of Part V.1 of Schedule V to the ETA.

A supply of advertising is a service and is deemed to be made in Canada if any part of the service is, or is to be performed in Canada. Services provided wholly outside Canada are not subject to the GST/HST.

The XXXXX located in Canada, with a website located in Canada and the organization is registered under the GST/HST to collect and remit tax on taxable supplies XXXXX[.] As a charity, they are generally exempt from GST/HST for most supplies that they might make. One exception to this exempt status is the making of zero-rated supplies.

Conclusion

According to the information provided, the client wishes to make zero-rated supplies in Canada to non-resident person pursuant to section 7 of Part V of Schedule VI to the ETA, or to non-resident non registered persons pursuant to section 8 of Part V of Schedule VI to the ETA, and therefore excluded from the general exempting provision of section 1, of Part V.1 of Schedule V to the ETA. They also anticipate selling advertising to resident customers and other international clients as well.

Dear XXXXX

We are writing in reference to the letter of September 22, 1998, from our XXXXX XXXXX copy enclosed, which provided a ruling concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. Upon further review, it has come to our attention that our letter requires clarification.

This ruling replaces our letter of September 22, 1998, in its entirety. However, you are entitled to rely upon the September 22, 1998 ruling until the date (noted above) of this revised ruling. We have described the differences between the two rulings in the second last paragraph of this letter.

Statement of Facts

Based on the information on hand, our understanding of the facts is as follows:

1. XXXXX is a registered charity and has a membership consisting mostly of XXXXX[.] The XXXXX is also registered for GST/HST purposes.

2. The XXXXX has developed a methodology called the XXXXX, for recording and tracking professional development and continuing medical education activities.

3. The XXXXX consists of a CD ROM, a manual or workbook explaining how the process works and a one year subscription to the XXXXX is a web site where all the professional development activities are entered, using the formatting from the CD ROM.

4. The one year subscription to the XXXXX will allow individuals to access the web site and compare their activities to those undertaken and recorded by their peers.

5. The XXXXX will be provided as part of the membership free of charge. The XXXXX will also sell the XXXXX to non-members. In a telephone conversation, you mentioned that the subscription fee for non-resident non-members is XXXXX (plus handling and shipping fees) and that the subscription fee for resident non-members, is approximately XXXXX[.]

6. When the XXXXX sold to a non-resident non-member, the individual is outside Canada at the time the supply is made.

Ruling Requested

The XXXXX requests the following rulings:

1. What is the tax status of the XXXXX when supplied as part of the membership?

2. What is the tax status of the XXXXX when supplied to resident non-members?

3. What is the tax status of the XXXXX when supplied to non-resident non-members?

Ruling Given

Based on the facts set out above, we rule that:

1. The XXXXX supplied as part of the membership is an exempt supply under section 1 of Part V.1 of Schedule [V] to the Excise Tax Act (the "ETA").

2. The XXXXX supplied to resident non-members is an exempt supply under section 1 of Part V.1 of Schedule V to the ETA.

3. The XXXXX supplied to non-resident non-members is a zero-rated supply under section 7 of Part V of Schedule VI to the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

1. Section 1 of Part V.1 of Schedule V to the ETA, is a general exemption for property and services supplied by a charity, although it sets out certain exceptions to the general exemption. Since none of the exceptions apply to the XXXXX memberships, they are exempt under this provision. This exemption includes the provision of XXXXX, since it is part of the supply of memberships. For your general information and reference, we have attached the text of section 1, the "general exemption" for charities.

2. When provided to non-members, the supply of the XXXXX is considered a supply of a service for GST/HST purposes. As mentioned previously, section 1 of Part V.1 of Schedule V exempts all supplies made by a charity of personal property and services, except those specifically listed in paragraphs 1(a) to (m) (see attachment). As the XXXXX is not a service that is listed as an exception, it will be exempt for GST/HST purposes when supplied to resident non-members.

3. Schedule VI of the ETA sets out certain supplies that are "zero-rated" for GST/HST purposes. A zero-rated supply is a supply taxable at the rate of 0%. A supply of a service such as the XXXXX made to a non-resident person is a zero-rated supply pursuant to section 7 of Part V of Schedule VI to the ETA provided that the individual is not in Canada at the time the supply is made. Please note that pursuant to paragraph 1(a) of Part V.1 of Schedule V of the ETA, the general charity exemption does not apply to zero-rated supplies. Accordingly, this supply is "zero-rated" rather than exempt.

Tax is not exigible on either a zero-rated or exempt supply. The distinction between the two concerns related purchases. Since a zero-rated supply is a taxable supply, the tax on related purchases may be recovered by input tax credits. However, input tax credits may not be claimed for tax paid on purchases used to make exempt supplies, although a charity such as the XXXXX may claim XXXXX rebate of such tax.

We will now briefly address the differences between this ruling and the ruling of September 22, 1998. That prior ruling described the application of the "direct cost exemption" which provides that a supplier of a good sold on a cost recovery basis has a choice of treating the supply as either taxable or exempt. However, as described above, it is now our view that the supply of XXXXX is not a "good" but rather is either a supply of a membership (i.e., is a component of the membership) or a service, depending on the circumstances. The direct cost exemption does not apply to memberships, and has very limited application to services (applying only to those that are purchased and resupplied in the same form).

Even though the supply of XXXXX will not be exempt under the direct cost exemption, it is nevertheless exempt under the general charity exemption in the circumstances described in the first two rulings above.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0329.

Yours truly,

Gabrielle Nadeau
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

EXEMPT SUPPLIES BY CHARITIES

A supply made by a charity of any property or service, but not including a supply of

(a) property or a service included in Schedule VI;

(b) property or a service where the supply is deemed under Part IX (other than section 187) of the Act to have been made by the charity;

(c) personal property (other than property that was acquired, manufactured or produced by the charity for the purpose of making a supply by way of sale of the property) where, immediately before the time tax would be payable in respect of the supply if it were a taxable supply, the property was used (otherwise than in making the supply) in commercial activities of the charity or, in the case of capital property, primarily in such activities;

(d) tangible personal property that was acquired, manufactured or produced by the charity for the purpose of making a supply of the property and was neither donated to the charity nor used by another person before its acquisition by the charity, or any service supplied by the charity in respect of such property, other than such property or such a service supplied by the charity under a contract for catering;

(e) an admission in respect of a place of amusement unless the maximum consideration for a supply by the charity of such an admission does not exceed one dollar;

(f) a service involving, or a membership or other right entitling a person to, supervision or instruction in any recreational or athletic activity except where

(i) it could reasonably be expected, given the nature of the activity or the degree of relevant skill or ability required for participation in it, that such services, memberships or rights supplied by the charity would be provided primarily to children 14 years of age or under and the services are not supplied as part of, the membership is not in, or the right is not in respect of, a program involving overnight supervision throughout a substantial portion of the program, or

(ii) such services, memberships or rights supplied by the charity are intended to be provided primarily to individuals who are underprivileged or who have a disability;

(g) a membership (other than a membership described in subparagraph (f)(i) or (ii)) where the membership

(i) entitles the member

(A) to an admission in respect of a place of amusement the supply of which, were it made separately from the supply of the membership, would be a taxable supply, or

(B) to a discount on the value of consideration for a supply of such an admission, or

(ii) includes a right to participate in a recreational or athletic activity, or use facilities, at a place of amusement, except where the value of the admission, discount or right is insignificant in relation to the consideration for the membership;

(h) services of performing artists in a performance where the supply is made to a person who makes taxable supplies of admissions in respect of the performance;

(i) a right, other than an admission, to play or participate in a game of chance where the charity is a prescribed person or the game is a prescribed game of chance;

(j) a residential complex, or an interest therein, where the supply is made by way of sale;

(k) real property where the supply is made by way of sale to an individual or a personal trust, other than a supply of real property on which is situated a structure that was used by the charity as an office or in the course of commercial activities or of making exempt supplies;

(l) real property where, immediately before the time tax would be payable in respect of the supply if it were a taxable supply, the property was used (otherwise than in making the supply) primarily in commercial activities of the charity; or

(m) real property in respect of which an election under section 211 of the Act is in effect at the time tax would become payable in respect of the supply if it were a taxable supply.

Dear XXXXX

Thank you for your letter of February 10, 1999 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below. We apologize for the delay in our response.

Statement of Facts

Our understanding of the facts is as follows:

1. You sent a photograph of the product which comprises a flat (or nearly flat) black platter holding seven individual servings of fruit tartelettes.

2. The seven tartelettes occupy all available space on the platter with six of the tartelettes placed along the outer perimeter of the platter and the seventh tartelette placed in the center of the platter.

3. The platter is covered with a transparent plastic dome.

4. During our telephone conversation of June 1, 1999, you stipulated that the product is supplied only in this kind of manner; that is, this particular type of fruit tartelette is only supplied in this kind of container.

Ruling Requested

You request a ruling to confirm that supplies of this product are zero-rated as they do not fall within the scope of paragraph 1(o.3) of Part III of Schedule VI of the Excise Tax Act as "platters of cheese, cold cuts, fruit or vegetables and other arrangements of prepared food".

Ruling Given

Based on the facts set out above, we rule that:

Supplies of seven fruit tartelettes supplied on a flat (or nearly flat) platter which is covered with a plastic dome are zero-rated as they do not fall within the scope of paragraph 1(o.3) of Part III of Schedule VI to the Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8253.

Yours truly,

Gisèle Prévost
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Encl.:

Dear XXXXX

Thank you for your letter of December 3, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of the XXXXX[.]

Background Facts

1. The XXXXX a non-profit-organization whose mandate is to provide education courses, business opportunities and services related to "error and omission" insurance for its members.

2. Each member pays membership dues which the XXXXX expends on education courses, general communication and business opportunities.

3. The purpose of the education courses provided by XXXXX to improve the knowledge of members with regards to their profession.

4. Members pay XXXXX an insurance "collection fee" for services XXXXX provides with respect to "error and omission" (i.e. liability) insurance. Presently, the annual collection fee that XXXXX earns is about $XXXXX[.] During recent telephone conversations, you have provided the following additional information concerning these services and the procedures followed by the XXXXX[.]

•   Assume Jane Doe applies for membership in XXXXX. Once it is determined that Jane meets certain appraisal standards, she is certified by XXXXX and becomes a member. If Jane is a residential appraiser, she is required ^[i]1 to carry XXXXX 's "group" insurance.

•   Jane provides XXXXX sufficient information on an application form which XXXXX forwards to its broker who in turn forwards it to the insurance company who issues the policy to Jane Doe.

•   Jane also encloses a cheque payable to XXXXX with her application form for the insurance premium plus XXXXX fee. The cheque is payable XXXXX[.]

•   XXXXX then forwards the application to the broker. The broker issues a certificate of insurance (indicating the policy issued by the insurance company) to the member and a copy of the certificate and the invoice for the policy XXXXX XXXXX then forwards a cheque to the broker. The difference between the cheque XXXXX receives from the member and the cheque issued to the broker is XXXXX collection fee.

•   XXXXX has entered no "agreement" with the member concerning the XXXXX[.] Rather, the fee is an XXXXX an association that collects a premium on behalf of an insurance carrier is legally entitled to retain the XXXXX fee under provincial law. The fee is to compensate XXXXX for its administrative services (processing applications and fees, and dealing with the broker with respect to applications and claims).

•   Part of XXXXX's mandate is to find the best "deal" for its members, and it does this through its broker. Its members have the ability to oppose this choice (at the Annual General Meeting for example). In practice XXXXX has a fairly long standing relationship with one carrier and its members are quite satisfied.

•   The arrangement is not "group insurance" as described in the Departments Policy Statement P-092 since XXXXX is not a party to the policy. It is XXXXX understanding that this insurance arrangement is typical in the industry with regards to liability insurance. One advantage is that this type of arrangement is more flexible (than group insurance) since the members are insured individually - for example, the insurer may adjust the rates of a particular member, if that member's risk varies significantly. This means a better premium for the average member, in addition to the reduced premium they receive by dealing with the carrier as a group.

•   XXXXX does receive a copy of the policy issued by the carrier to the member. A copy of such a policy accompanied XXXXX submissions.

5. Currently XXXXX total annual revenues are approximately XXXXX. The XXXXX has no revenues other than those described above. Accordingly, regardless of the tax status of the supplies described above, XXXXX presently qualifies as a small supplier for GST/HST purposes and is thus not required to become a GST/HST registrant.

Ruling Requested

XXXXX required to charge GST/HST on the membership fees and the insurance collection fee paid by members? Furthermore, the XXXXX requests information on the requirements to register and on procedures to deregister.

Ruling Given

Memberships

Based on the facts set out above, we rule that memberships supplied by the XXXXX are taxable for GST/HST purposes. However, as a small supplier, the XXXXX is not required to register for GST/HST purposes and therefore does not collect GST/HST on its membership fees. It will be required to register and charge tax on its taxable supplies if and when it is no longer a small supplier.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Insurance Collection Fee

We require further information in order to provide a ruling on the tax status of the service provided to members with respect to insurance, for which the members pay a "collection fee."

However, for your assistance, we will provide general comments below concerning this supply.

Explanation

Memberships

A membership in a non-profit organization such as the XXXXX is generally taxable if the members receive any benefits other than those set out under section 17 of Part VI of Schedule V to the Excise Tax Act (the ETA). These "allowable benefits" are:

•   the right to receive an indirect benefit intended to accrue to all members collectively;

•   the right to receive investigation, conciliation, or complaint-settlement services supplied by the body for issues involving members;

•   the right to vote at or participate in meetings;

•   the right to receive or acquire property or services for consideration equal to the fair market value of the property or services at the time the supply is made;

•   the right to receive a discount on the fee paid for a supply provided by the organization where the total value of all such discounts to which a member is entitled is insignificant in relation to the membership fee; and

•   the right to receive periodic newsletters, reports or publications for which the value is insignificant in relation to the consideration paid for the membership, or that provide information on the activities of the body or its financial status, other than newsletters, reports or publications the value of which is significant in relation to the consideration for the membership and for which a fee is ordinarily charged by the body to non-members.

As indicated by the background facts, since the members receive benefits other than those "allowable benefits" described above, such as education courses and business opportunities, the membership in XXXXX is taxable for GST/HST purposes. However, as mentioned previously, since XXXXX not registered for GST/HST purposes, it will not charge GST/HST on its supplies.

Registration Requirements

XXXXX is not required to register for GST/HST by virtue of subsection 148(1) of the ETA. Under this provision, a public service body, such as the XXXXX is a small supplier if its total revenues from taxable supplies (other than supplies of financial services and sales of capital property) for its previous four quarters or for any particular quarter are $50,000 or less. Where its annual revenues from taxable supplies is $50,000 or less, it may voluntarily register for GST/HST purposes. If its annual revenues from taxable supplies exceeds $50,000, it is required to register for the GST/HST.

As noted above, XXXXX may voluntarily register for GST/HST and if it does so, it will be required to charge GST/HST on its taxable supplies and will be entitled to claim input tax credits to recover the tax paid on its purchases used to make taxable supplies.

You also asked about XXXXX status if, at some later date, it is required to register for the GST/HST but then, at a date beyond that, its revenues again fall below the small supplier's threshold. Please note that any time a GST/HST registrant becomes a small supplier, it may apply to have its registration cancelled. However, in accordance with subsection 242(2) of the ETA, once registered, an organization must retain its registration status for at least one year before applying for cancellation of its registration.

Insurance Collection Fee

As to the XXXXX we are unable to determine if this amount is subject to GST without a clearer understanding of what services are being provided by the XXXXX for the receipt of this amount.

Under the Excise Tax Act, a supply of services is generally subject to tax unless the supply is an exempt supply such as a supply of financial services. In the case concerning an insurance policy, the services of an intermediary of "arranging for" the issue of the insurance policy will qualify as exempt financial services, and any fee paid or payable for these services are not subject to tax.

In general, an "arranging for" service can be described as the activities of a person acting as a "go-between" in bringing together, in an active manner, the insurance company and the insured in the issue of an insurance policy, and both the insurance company and the insured may count on the person for assistance in completing the issue of the policy. However, the mere service of referring, introducing or recommending the insurance company to the insured will not qualify as an "arranging for" service. The phrase "arranging for" applies to services provided by license insurance brokers or by persons when they are acting as agents, salespersons, or brokers primarily involved in the placement of the insurance policy where a clear nexus between their activities and the provision of the insurance policy can be established.

Therefore, we would be able to advise if the XXXXX for the provision of its services is subject to GST if you could provide us, in writing, with a detailed description in addition to the information already submitted of the activities and responsibilities of the XXXXX in connection with the issue of the insurance policy by the insurance company to the Association's members; for example:

•   does the XXXXX send out the insurance application forms to its members;

•   does the XXXXX help the members in completing the forms;

•   does the XXXXX collect and verify the completed forms from its members before forwarding them to the insurance company;

•   does the XXXXX provide any assistance to the members or the insurance company whenever necessary in matters relating to the application or the issuance of the insurance policy;

•   does the XXXXX provide any assistance to the members with respect to the insurance claims.

In order to receive an application ruling with respect to the insurance collection fee, please forward the required information, as outlined above, to:

John Sitka
Director
Financial Institutions & Real Property Division
GST/HST Rulings & Interpretation Directorate 10/F Tower "C"
25 McArthur Road, Vanier
Ontario K1A 0L5

Should you have any further questions concerning insurance and the "collection fee" issue, please contact Phil Tang at (613) 954-1433. For other matters concerning this reply, please feel free to contact me at (613) 952-0329.

Yours truly,

Gabrielle Nadeau
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

Encl.:

Dear XXXXX

Thank you for your facsimile of February 16, 1999 and your letter of March 22, 1999 (including your sales kit and sample of product) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the product described below.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX has developed a new product called XXXXX which is in the form of a XXXXX[.]

2[.] XXXXX is packaged in XXXXX box of approximately XXXXX[.]

3. The product is to be sold in stores as a XXXXX[.]

4. The primary placement of the product in stores is on the XXXXX[.]

Ruling Requested

You request a ruling to confirm that supplies of XXXXX are zero-rated supplies of basic groceries pursuant to section 1 of Part III of Schedule VI of the Excise Tax Act.

Ruling Given

Based on the facts set out above, we rule that

Supplies of XXXXX meal replacement are considered to be zero-rated supplies of basic groceries pursuant to section 1 of Part III of Schedule VI of the Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8253.

Yours truly,

Gisèle Prévost
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Encl.:

Dear XXXXX

Thank you for your letter of April 15, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX[.]

Ruling Requested

You are asking if a university can elect to have its XXXXX taxable by virtue of section 6 of Part III of Schedule V to the Excise Tax Act (ETA), as both courses are being recognized by regulatory bodies.

Ruling Given

It is the Department's position that a university cannot elect, pursuant to section 6 of Part III of Schedule V to the ETA , to have the supply of it XXXXX taxable.

Section 6 of Part III of Schedule V to the ETA provides that:

"a supply of

(a) a service of instructing individuals in courses leading to, or for the purpose of maintaining or upgrading, a professional or trade accreditation or designation recognized by a regulatory body, or

(b) a certificate, or a service of administering an examination, in respect of a course, or in respect of an accreditation or designation described in paragraph (a),

where the supply is made by a professional or trade association, government, vocational school, university or public college or by the regulatory body, except where the supplier has made an election under this section in prescribed form containing prescribed information."

This section is aimed at exempting tuition or examination fees charged by professional or trade associations, governments, vocational schools, universities, public colleges, or provincial or federal regulatory bodies for courses supplied for the purpose of obtaining, maintaining or upgrading a professional or trade accreditation or designation recognized by a regulatory body, such as an accounting designation. This section also provides the supplier of such courses with the option to elect to have the supply of the courses taxable.

It is the Department's position that the supply of XXXXX courses by universities for a diploma or a degree does not fall within section 6. Section 6 applies to courses "leading to or for the purposes of maintaining or upgrading a professional or a trade accreditation." This section does not apply to courses which are taken for a diploma or a degree. The supply of those courses are exempt under section 7 of Part III of Schedule V to the ETA which provides that: "A supply made by a school authority, public college or university of a service of instructing individuals in, or administering examinations in respect of, courses for which credit may be obtained toward a diploma or degree."

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%[.] Example: Goods that are delivered or made available in a participating province are subject to the HST, to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-1175.

Yours truly,

Don Gagnon
Educational Services and Indians Unit
Division
GST/HST Rulings and Interpretations Directorate

Dear Sir:

Thank you for your letter of January 20, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX rewards program.

Statement of Facts

Our understanding of the facts is as follows:

XXXXX operates a number of grocery stores both within and outside the participating provinces.

•   XXXXX sells both zero-rated groceries and non zero-rated items (i.e. supplies taxable at either 7 or 15 percent).

•   Customers may join a rewards program known as XXXXX members accumulate points based upon the purchase of specified items. These items vary from week to week and usually consist of both zero-rated basic groceries and non zero-rated items. For example, the purchase of a zero-rated basic grocery item may result in the customer being credited with XXXXX while the purchase of a non zero-rated item may result in the customer being credited with an additional XXXXX[.]

•   It is possible for XXXXX members to accumulate points through the use of third party persons. For example, a XXXXX member may receive a coupon entitling the person to XXXXX points in exchange for purchasing XXXXX[.]

•   Once the XXXXX member has accumulated, XXXXX a "voucher" is generated which entitles the member to XXXXX off their next purchase at XXXXX[.]

•   Currently, when a "voucher" is redeemed, XXXXX is treating this "voucher" in a manner similar to cash, that is, if a customers total owing is XXXXX [t]axes included), the "voucher" is used to reduce the amount owing to XXXXX with no adjustment being made for the GST/HST applicable to the gross amount of the taxable goods.

•   Should a customer use this "voucher" for an amount less than XXXXX the customer is refunded cash for the difference.

•   In order to be redeemed, the "voucher" must be used against the purchase of goods, that is, the coupon cannot be exchanged for XXXXX cash.

•   This "voucher" can currently be used for any goods sold through a XXXXX store.

•   XXXXX is not reimbursed by a third party for the value of the "vouchers" redeemed.

•   When redeemed the "vouchers" are not currently attributed to a specific supply.

XXXXX has recently modified its automated point-of-sale system in a number of retail locations and this point-of-sale system can provide for an immediate discount when the requisite point threshold is reached. Where a retail location is not so equipped, the non-automated "voucher" system described herein will continue to apply.

Ruling Requested

1. Is an ITC currently available to XXXXX under subsection 181(3) when a customer redeems the coupon against the purchase of items which are both zero-rated and non zero-rated? In such a situation the coupon would be used as partial consideration against the multiple supplies made by XXXXX which of course include non zero-rated goods. If yes, is the ITC equal to 15/115 or 7/107 of the face value of the coupon, or is the ITC to be calculated as the percentage of non zero-rated goods to the total consideration owing?

2. If an ITC is not currently available to XXXXX would an ITC be available if the coupon were somehow attributed only to the non zero-rated items in a customer's order? If yes, are there any documentation or procedure requirements that must be adhered to in order to substantiate the claiming of the ITC?

3. In addition to the above questions, you requested a ruling on the availability of an ITC under subsection 181(3) if the coupon were redeemed and treated as a partial cash payment in the following specific situations.

Situation 1:

A customers total grocery order comes to XXXXX[.] Included in the order are non zero-rated goods totaling at least XXXXX (tax included).

Situation 2:

A customers total grocery order comes to XXXXX. Included in the order are non zero-rated goods totaling less than XXXXX (tax included).

Ruling Given

Based on the facts set out above, we rule that:

1. No ITC is available to XXXXX under subsection 181(3) of the Excise Tax Act (the Act). The amount of the discount provided by the XXXXX points will reduce the value of the consideration for each of the goods purchased, further to subsection 181(4). Where a XXXXX member redeems XXXXX points and applies them against the purchase of taxable items which are both zero-rated and non zero-rated (i.e. taxable at 7 or 15 percent), the subsequent discount will apply to all items proportionally, based on the value of the consideration for each item.

2. The Department's position would not differ if the XXXXX points are somehow attributed only to the taxable supplies that are non zero-rated. No ITC is available to XXXXX under subsection 181(3) of the Act.

3. As stated previously, no ITC is available to XXXXX under subsection 181(3).

Explanation

Subsection 181(1) of the Act defines "coupon" to include "a voucher, receipt, ticket or other device but does not include a gift certificate". The Department has taken the position that the definition of "coupon" encompasses intangible devices that have the characteristics of a traditional paper coupon. Therefore, the points awarded under the XXXXX rewards program would meet the definition of "coupon".

The Department has also taken the position that where points are accumulated and redeemed after certain thresholds are met subsection 181(3) of the Act does not apply. The rationale is that a "point" does not entitle the recipient of the supply to a reduction of the price of the property or service equal to a fixed dollar amount specified in the coupon or a fixed percentage specified in the coupon. These conditions are necessary in order for subsection 181(3) of the Act to apply.

Subsection 181(4) of the Act, however, would apply. Subsection 181(4) provides:

For the purposes of this Part, where a registrant accepts, in full or partial consideration for a supply of property or a service, a coupon that may be exchanged for the property or service or that entitles the recipient of the supply to a reduction of, or a discount on, the price of the property or service and subsection (2) does not apply in respect of the coupon, the value of the consideration for the supply shall be deemed to be the amount, if any, by which the value of the consideration for the supply as otherwise determined for the purposes of this Part exceeds the discount or exchange value of the coupon.

Where a XXXXX member purchases property and redeems points, the value of the consideration is reduced by the amount of the discount associated with those points. As the XXXXX rewards program currently applies to the purchase of both non zero-rated and zero-rated supplies, any discount must apply to both where both are purchased by a XXXXX member. The amount of the discount would need to be prorated among each of the items purchased based upon the value of the consideration for each item.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Although there have been proposed amendments to subsections 181(1) and 181(4) of the Act, the current wording of those proposed amendments would not change the ruling provided herein. Any change, however, to the wording of the proposed amendments or any future proposed amendments to the Excise Tax Act, if enacted, could have an effect on this ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-3413.

Yours truly,

Philippe Nault
A/Senior Technical Analyst
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate

XXXXX

Dear XXXXX

Thank you for your letter of June 23, 1999, our telephone conversations of July 20 and August 25, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of mobile homes and related supplies. We appreciate your taking the time, along with your client XXXXX, to speak with us via conference calls on July 21 and August 30, 1999.

As a result of our Application Rulings issued to you on May 31, 1999, file HQR0001577, you have presented additional questions for our consideration. We will address your questions in the same order as they were presented.

All legislative references are to the Excise Tax Act (the Act).

The following rulings and interpretations must be read in conjunction with file HQR0001577 and we will reference that letter in our current response.

NEW HOME WARRANTIES

Rulings Requested

1. What is the tax status of the new home warranty fee collected from XXXXX by the warranty provider?

2. If the fee is subject to tax, is the rate of tax based on the location to which a home is delivered or made available to the recipient of the supply? That is, will the fee be subject to the GST at 7% if the home is delivered to a non-participating province and subject to the HST at 15% if delivered to a participating province?

Response

These issues involve matters which are beyond the purview of the Real Property Unit. In order to respond to your request we would require information concerning membership in the warranty program, the legal status of the warranty provider (e.g. whether it is a non-profit organization), the basis of payment of fees by XXXXX and the nature of the supply made by the warranty provider. This information can be sent to the attention of the undersigned. Alternatively, you may wish to have the warranty provider contact our Directorate with a ruling or interpretation request.

FREIGHT AND SET CHARGES

SITUATION 1

Statement of Facts

1. The agreement for sale of a mobile home from XXXXX to a dealer does not include "freight" and "set" charges (as those terms are used in file HQR0001577) to a consumer's lot, but such charges become part of the agreement subsequent to entering into the original contract. This may occur where a dealer purchases a home to be held in inventory and subsequently has XXXXX transport and affix the home to the consumer's lot.

2. The dealer will finance the home through a finance company with the "freight" charges being financed in addition to other consideration payable for the mobile home.

3. A freight company invoices XXXXX which pays the freight and in turn charges this amount to a dealer.

4. If the home has not been invoiced by XXXXX the "freight" charges are added to the invoice. If an invoice has previously been issued, an additional invoice is issued to the dealer which reflects the "freight" charges.

Rulings Requested

1. You are requesting confirmation that the "freight" and "set" charges subsequently charged still form part of a single supply of a mobile home.

2. You are requesting confirmation that where the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect the tax payable on the supply pursuant to subsection 221(2).

Rulings Given

Based on the facts set out above, we rule that:

1. Where a dealer purchases a mobile home from XXXXX and the sales agreement makes provision for "freight" or "freight and set" for eventual delivery to a consumer's lot, the "freight" or "freight and set" would be considered part of a single supply of a mobile home, irrespective of whether the amount for "freight" or "set" services is known at the time the agreement is entered into.

Where a dealer purchases a mobile home from XXXXX and the contract price does not include "freight" or "freight and set" charges for eventual delivery to a consumer's lot, the "freight" and "set" services would not be considered a single supply of a mobile home. For example, if XXXXX sells a mobile home to a dealer and several months later the dealer requests XXXXX to provide "freight and set" services to a consumer's lot, those services would not be considered part of the original supply of the mobile home if they were not contemplated in the original sales agreement.

2. We confirm that where the "freight" or "freight and set" charges are considered part of a single supply of a mobile home, and the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect the tax payable on the supply pursuant to subsection 221(2).

SITUATION 2

Statement of Facts

1. XXXXX receives a freight bill after an invoice for a mobile home has been issued by XXXXX to a dealer.

2. The amount for freight was unknown until XXXXX received the freight invoice.

3. A separate invoice is issued by XXXXX to the dealer for the amount of the freight invoice received by XXXXX[.]

4. The provision for "freight" may or may not have been included in the original sales agreement between XXXXX and a dealer.

Ruling Requested

You are requesting confirmation that the "freight" charges above are considered to be part of a single supply of a mobile home and that where the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

Where the original sales agreement requires XXXXX to deliver a mobile home to a certain location, or there is an addendum to the agreement which requires XXXXX to deliver the home to that location, XXXXX is making a single supply of a mobile home, irrespective of whether the amount for freight is known at the time the sales agreement is entered into. Pursuant to subsection 221(2), where the dealer is registered for the GST/HST and is not an individual, XXXXX is not required to collect tax on the supply.

FINISH CHARGES

SITUATION 1 - PORCHES AND GARAGES

Statement of Facts

1[.] XXXXX will sometimes supply porches as well as attached and detached garages in conjunction with the sale of a mobile home.

Ruling Requested

You are requesting confirmation that for the purposes of file HQR0001577, porches, attached garages and detached garages would be "reasonably necessary for the use and enjoyment" of a mobile home as a place of residence for individuals.

Interpretation Given

We are not in a position to provide a ruling on whether any particular porch or garage (attached or detached) is "reasonably necessary for the use and enjoyment" of a mobile home as a place of residence for individuals. Such determination can only be made on a case by case basis.

Generally, however, these items would be considered "reasonably necessary for the use and enjoyment" of a mobile home as a place of residence. As such, where the items are included in a single supply of a mobile home, pursuant to subsection 221(2), XXXXX is not required to collect tax on the supply if the dealer is registered for the GST/HST and is not an individual.

SITUATION 2 - TRANSFER OF TITLE

Statement of Facts

1. There are occasions when a mobile home is purchased by a dealer for inventory purposes through a financing arrangement with a financing company.

2[.] XXXXX receives payment for the mobile home prior to its actual delivery to the purchaser.

3. Title to the home is typically transferred to the dealer when payment is received in full. In these instances, the home may still be located on premises of XXXXX[.]

Ruling Requested

You are requesting confirmation that finish charges which were not included in the original agreement, but are considered to form part of the agreement under the guidelines in item 2, page 6 of file HQR0001577, (with the possible exception of 2(b)) are not excluded from forming part of a single supply of a mobile home due solely to the fact that title is transferred upon receipt of full payment for the home.

Ruling Given

Based on the facts set out above, we rule that:

Finish items that are ordered at or around the same time as title to the mobile home is transferred to the dealer, where the remaining conditions (i.e. other than 2(b)) identified in the second ruling on page 6 of file HQR0001577 are satisfied, will be considered to be included in the original sales agreement. In such cases, the finish items may be considered to form part of a single supply of a mobile home. The "Comments" section on pages 7 and 8 of file HQR0001577 would be helpful in determining whether any particular materials are supplied "at or around the same time" as title to the home is transferred.

ADDITIONAL MATERIALS

The following facts apply to the next eight (8) situations.

Statement of Facts

1. To assemble a modular home, certain finishing items are required to be installed on site. These items are referred to as "standard finish" items. Examples include siding material for gable ends, interior trim for the interior modular connection, and shingles to cap the roof. These items are necessary to complete the home and are included in the base price of the home.

2. "Additional materials" are materials that are not considered as "standard finish" items. They would include items such as materials to construct a knee wall, additional windows for a knee wall, and materials to complete the second story of a Cape Cod design home. Additional materials could also include materials for a garage, extra siding to match a doghouse or storage shed, or additional insulation and gyproc to complete a second story of a home which the consumer will eventually install or have installed.

3. The recipient of the supply by XXXXX registered for the GST/HST.

SITUATION 1

Ruling Requested

You are requesting confirmation that the second paragraph of item 4, page 7 of file HQR0001577 refers to "additional materials" that are not included as part of original contract and not to standard finish materials (i.e. materials required to complete the home).

Ruling Given

Based on the facts set out above, we rule that:

We confirm that the second paragraph of item 4, page 7 of file HQR0001577 refers to "additional materials" that are not included as part of original contract and does not refer to standard finish materials (i.e. materials required to complete the home).

SITUATION 2

Ruling Requested

You are requesting confirmation that where "additional materials" are not included in the original sales agreement and the other requirements in item 2, page 6 of file HQR0001577 are not met, the additional materials will not form part of the single supply of a mobile home. The materials will be taxed pursuant to the provisions of Part II of Schedule IX to the Act. Specifically, XXXXX will be required to collect tax on these supplies. If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

Ruling Given

Based on the facts set out above, we rule that:

We confirm that where "additional materials" are not included in the original sales agreement and the other requirements in item 2, page 6 of file HQR0001577 are not met, the additional materials will not form part of the single supply of a mobile home. XXXXX will be required to collect tax on these supplies pursuant to subsection 221(1). If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

SITUATION 3

Ruling Requested

You are requesting confirmation that where a mobile home and "additional materials" only are supplied under the original sales agreement, or the other requirements set out in item 2, page 6 of file HQR0001577 are met, the additional materials will form part of a single supply of a mobile home. As such, where the recipient is not an individual, the provisions of subsection 221(2) will apply and XXXXX will not be required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

In these circumstances, the "additional materials" will not form part of a single supply of a mobile home. Such materials will be considered a supply of tangible personal property. As such, XXXXX will be required to charge and collect the tax payable on the supply of the "additional materials".

SITUATION 4

Ruling Requested

You are requesting confirmation that "additional materials" and installation services that are supplied by XXXXX and which form part of the original sales agreement or meet the criteria of item 2, page 6 of file HQR0001577, will constitute a single supply of real property and that, where the recipient is not an individual, subsection 221(2) will apply. Specifically, XXXXX will not be required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

We confirm that where XXXXX supplies and installs "additional materials" and the supply forms part of the original sales agreement or meets the criteria of item 2, page 6 of file HQR0001577, the supply will be that of a single supply of real property. Where the recipient is not an individual, XXXXX will not be required to collect tax on the supply, pursuant to subsection 221(2).

SITUATION 5

Ruling Requested

You are requesting confirmation that where "additional materials" are supplied by XXXXX with installation services in respect of those materials provided by a dealer or a dealer's contractor, and the materials form part of the original contract between XXXXX and the dealer, or meet the criteria under item 2, page 6 of file HQR0001577, the materials will constitute part of a single supply of real property. Specifically, where the recipient is not an individual, subsection 221(2) will apply and XXXXX will not be required to collect tax on the supply.

Ruling Given

Based on the facts set out above, we rule that:

In these circumstances, the "additional materials" will not form part of a single supply of real property. Such materials will be considered a supply of tangible personal property. As such, XXXXX will be required to charge and collect the tax payable on the supply of the "additional materials".

SITUATION 6

Ruling Requested

You are requesting confirmation that where only "additional materials" are sold, tax is applicable and charged, and the purchaser subsequently requests XXXXX to install such materials, the tax status of the supply of materials will be as in Situation 2, above.

Ruling Given

Based on the facts set out above, we rule that:

We confirm that where only "additional materials" are supplied, tax is applicable and charged by XXXXX and the purchaser subsequently requests XXXXX to install the materials, the supply of the materials will not be considered to form part of a single supply of a mobile home. XXXXX will be required to collect tax on the supply. If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

SITUATION 7

Ruling Requested

You are requesting confirmation that the services of installing "additional materials", where the materials were not part of the original sales agreement and do not meet the criteria in item 2, page 6 of file HQR0001577, will have the same tax treatment as the mobile home. Specifically, if XXXXX is not required to collect tax on the home, XXXXX will not be required to collect tax on the installation services.

Ruling Given

Based on the facts set out above, we rule that:

Where XXXXX provides a service of installing "additional materials" that were not part of the original sales agreement and do not meet the criteria of item 2, page 6 of file HQR0001577, the supply of the services will be subject to tax in accordance with the ruling given in the third paragraph of item 4, page 7 of file HQR0001577. That is, where XXXXX has agreed to install the materials in a residential complex, it is making the supply of a service. Where the service is in relation to real property, the applicable tax rate will be determined in accordance with the provisions of section 2 of Part IV of Schedule IX to the Act. Where the service is not in relation to real property, the applicable tax rate will be determined in accordance with the provisions of Part V of Schedule IX to the Act. In determining whether any particular service is "in relation to real property", you may wish to refer to policy paper P-169R, "Meaning Of 'In Respect Of Real Property Situated In Canada' And 'In Respect Of Tangible Personal Property That Is Situated In Canada At The Time The Service Is Performed', For Purposes Of Schedule VI, Part V, Sections 7 And 23 To The Excise Tax Act". In these circumstances, XXXXX would have to collect and remit tax on the supply in question, and the dealer would not be required to self-assess tax under subsection 221(2).

SITUATION 8

Ruling Requested

You are requesting confirmation that when "additional materials" and installation services were to be supplied in conjunction with the sale of a mobile home, but the purchaser subsequently decides not to engage the services of XXXXX[.] For installation of the materials, the original arrangement whereby XXXXX was not required to collect tax on the supply pursuant to subsection 221(2) still applies.

Ruling Given

Based on the facts set out above, we rule that:

Where

(a) "additional materials" and installation services were to be supplied in conjunction with the sale of a mobile home, and

(b) subsequent to the dealer entering into a sales agreement with XXXXX the dealer, either as a result of their client's wishes or otherwise, decides not to engage the services of XXXXX for installation of the materials and a change to the sales agreement is made, the tax status of the supply by XXXXX to the dealer will depend on whether the supply from XXXXX to the dealer has taken place.

If the supply from XXXXX to the dealer has been made at the time the change to the sales agreement is made, the materials will be considered to form part of a single supply of a mobile home. Where the dealer is not an individual, XXXXX is not required to collect tax on the supply pursuant to subsection 221(2).

If the supply from XXXXX to the dealer has not been made at the time the change to the sales agreement is made, the materials will not form part of a single supply of a mobile home. XXXXX will be required to charge and collect tax on the consideration payable on the supply of the "additional materials". If the materials are delivered or made available in a non-participating province, the GST at 7% will apply. If the materials are delivered or made available in a participating province, the HST at 15% will apply.

CLARIFICATION OF ITEM 4, PAGE 7 OF FILE HQR0001577

The whole of item 4 is premised on a situation where finish charges in respect of "additional materials" are not included in the original sales agreement and the requirements of item 2, page 6 of file HQR0001577 are not satisfied. As such, the finish charges are not part of a single supply of a mobile home. The second paragraph of item 4 provides the rules for situations where only the materials are supplied, while the third paragraph of item 4 provides the rules for situations where materials are supplied and installed by XXXXX[.]

SALES TO END CONSUMERS

Statement of Facts

1. A mobile home will occasionally be sold directly to an end consumer rather than to a dealer as would normally occur.

Rulings Requested

You are requesting confirmation that once a mobile home has been placed on a foundation and affixed to same:

1. The home is considered to be real property for purposes of Schedule IX to the Act.

2. The finish charges will form part of a single supply of a mobile home and will follow the tax rate of the home itself, pursuant to Part IV of Schedule IX to the Act.

3. The place of supply for finish charges or other services performed on the home prior to its placement on a foundation and affixing to same, will be governed by Part V of Schedule IX to the Act.

4. You are requesting confirmation that where section 2 of Part I of Schedule IX to the Act deems a mobile home to be tangible personal property, the tax rate on the sale of a home would be determined by Part II of Schedule IX or, in the case of services, by Part V of Schedule IX to the Act.

Rulings Given

Based on the facts set out above, we rule that:

1. We confirm that your understanding is correct based on the understanding that if the supply of the home is made prior to the home being affixed to a foundation, for purposes of Schedule IX to the Act, the supply will be that of tangible personal property rather than real property.

2. We confirm that your understanding is correct, provided that the finish charges are part of the original sales agreement or the other requirements set out on item 2 of page 6 of file HQR0001577 are met.

3. Finish charges and other services performed on the mobile home prior to its being affixed to a foundation, are still considered part of a single supply of a mobile home if the conditions in item 1 or item 2, page 6 of file HQR0001577 are met. If the sales agreement calls for the home to be affixed to a foundation by XXXXX and possession and ownership of the home does not transfer to the purchaser until the home is affixed to a foundation, the single supply would be that of real property and the place of supply would be governed by the provisions of Part IV of Schedule IX to the Act.

4. If XXXXX supplies a mobile home by way of sale and the home is not affixed to a foundation at the time of the supply XXXXX will, for purposes of Schedule IX to the Act, be making a supply of tangible personal property. If the same agreement provides for services to be performed in relation to the mobile home before affixing it to the foundation, the place of supply of those services will be determined according to the provisions of Part V of Schedule IX to the Act.

PLACE OF SUPPLY (NOTED AS "CONCLUSION" REMARKS ON PAGE 8 OF YOUR LETTER OF JUNE 23, 1999)

Statement of Facts

1[.] XXXXX may sell a mobile home and finishing services are supplied after the home is affixed to a foundation.

Rulings Requested

1. You are requesting confirmation that for supplies involving only the sale of materials, the appropriate tax rate will be based upon where the materials are delivered or made available to the recipient of the supply. Typically, GST at 7% will apply where the goods are delivered or made available to the recipient of the supply in a non-participating province. Typically, the HST at 15% will apply where the goods are delivered or made available to the recipient in a participating province.

2. You are requesting confirmation that for transactions involving the sale of materials and the installation of such materials (after affixing the home to a foundation), the supply will be considered a service in relation to real property and the tax rate would be based on the provisions of Part IV of Schedule IX to the Act. Typically, GST at 7% will apply where the real property is located in a non-participating province. Typically, HST at 15% will apply where the real property is located in a participating province.

3. You are requesting confirmation that for transactions involving the sale of materials and the installation of such materials prior to affixing the home to a foundation, the supply will be considered a service and the tax rate will be based on the provisions of Part V of Schedule IX to the Act. Typically, GST at 7% will apply where the service is performed all or substantially all in a non-participating province, or the place of negotiation is in a non-participating province and it is not the case that all or substantially all of the service is performed outside the non-participating province. Typically, HST at 15% will apply if the service is performed all or substantially all in a participating province or the place of negotiation is in a participating province and it is not the case that all or substantially all of the service is performed outside the participating province.

Rulings Given

Based on the facts set out above, we rule that:

1. Regarding Ruling Request 1, with respect to a sale of materials only, the tax rate will be based upon where the materials are delivered or made available to the recipient of the supply. Pursuant to section 165 and Part II of Schedule IX to the Act, the GST at 7% will apply where the goods are delivered or made available to the recipient of the supply in a non-participating province. Where the materials are delivered or made available to the recipient in a participating province, the HST at 15% will apply.

2. Regarding Ruling Request 3, a supply involving the sale of materials and the installation of such materials prior to affixing the home to a foundation will be considered the supply of a service. The tax rate will be based on the provisions of section 165 and Part V of Schedule IX to the Act. The GST at 7% will apply where the service is performed all or substantially all in a non-participating province, or the place of negotiation is in a non-participating province and it is not the case that all or substantially all of the service is performed outside the non-participating province. The HST at 15% will apply if the service is performed all or substantially all in a participating province or the place of negotiation is in a participating province and it is not the case that all or substantially all of the service is performed outside the participating province.

Interpretation Given

With respect to Ruling Request 2, whether any particular service is considered a service in relation to real property is a question of fact on which we are unable to provide a ruling. Generally, however, services performed by XXXXX in relation to the sale of a mobile home which has been affixed to a foundation will be considered as a supply of a service in relation to real property and therefore governed by the provisions of section 2 of Part IV of Schedule IX to the Act. In determining whether a particular service is "in relation to real property", we would again refer you to policy paper P-169R.

HOMES SOLD TO DEALERS FOR INVENTORY PURPOSES

Statement of Facts

1. A mobile home is sold to a dealer who holds the home as inventory. The home has not been presold to a customer.

2. The dealer places the home on a lot for display. Occasionally, the home is affixed to a foundation at a dealer's lot. Generally, however, the home is not affixed to a foundation but is placed on some type of temporary support. Finishing work is done to the home such as finish of interior trim, installing the roof cap and installing the gable ends.

3. Typically, the home will be on display for several months before it is sold to a purchaser.

Rulings Requested

1. You are requesting confirmation that, other than for purposes of Schedule IX to the Act, finishing charges provided for a mobile home situated on a dealer's lot constitute part of a single supply of real property and that where the dealer is registered for the GST/HST and is not an individual, the provisions of subsection 221(2) apply.

2. For purposes of Schedule IX to the Act, finishing charges provided for a mobile home situated on a dealer's lot will be part of a single supply of tangible personal property.

Ruling Given

Based on the facts set out above, we rule that:

With respecting to Ruling Request 1, finishing items provided for a mobile home situated on a dealer's lot constitute part of a single supply of real property (other than for purposes of Schedule IX to the Act) and the provisions of subsection 221(2) will apply, provided that the dealer is not an individual and is registered for the GST/HST.

Interpretation Given

With respect to Ruling Request 2, we are unable to provide a ruling on whether finishing items provided for a mobile home situated on a dealer's lot constitute a supply of tangible personal property or real property. We can however, provide the following interpretation.

For purposes of Schedule IX to the Act, the finishing items constitute part of a single supply of a mobile home. Pursuant to section 2 of Part I of Schedule IX, where the home is not affixed to land, the supply of the home (which includes the finishing items) will be that of tangible personal property. If the home is affixed to land, the supply of the home (which includes the finishing items) may be that of tangible personal property or real property. Whether a mobile home affixed to a foundation can be considered real property is a question of fact and law, requiring an examination of the degree and object of annexation and other factors that may be relevant.

CREDIT NOTES

Statement of Facts

1[.] XXXXX will issue a credit note where property is returned by a purchaser to XXXXX or where XXXXX made a billing error on a supply.

2. On some occasions, a dealer may make a bulk return of axles and issue an invoice to XXXXX for the property.

Ruling Requested

You are requesting confirmation that XXXXX may choose to refund or credit the tax on a credit note, but that it is not required to do so.

Ruling Given

Based on the facts set out above, we rule that:

Where the conditions of paragraph 1(a) or (b) of the Ruling Given on page 10 of file HQR0001577 are met, pursuant to subsection 232(2[)] XXXXX may choose to refund or credit the tax, but it is not required to do so. Where the provisions of subsection 221(2) applied to the original supply, XXXXX cannot refund or credit the tax as no tax was charged or collected on the supply.

The rulings provided herein are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

The foregoing interpretations represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretations provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate

b.c.c.:          XXXXX

Dear XXXXX

This is in reply to your letter of July 16, 1998, concerning the above-noted subject, which you originally sent to our XXXXX provided you with a partial response in a ruling dated February 22, 1999. Your inquiry has been forwarded to our office to determine the application of the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") to acting courses offered by your school. Our comments are set out below.

On April 1, 1997, the HST replaced the GST and the provincial sales tax in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. Supplies of goods and services made in a participating province are subject to tax at a harmonized rate, unless a relieving provision applies. As the supply of courses is being made in XXXXX we will address the GST implications.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX is a partnership which operated an acting school.

XXXXX was registered for the GST and assigned registration number XXXXX[.] The partnership was later incorporated as XXXXX and, consequently, deregistered effective September 30, 1998. At that time, XXXXX was registered for GST and assigned registration number XXXXX[.]

2. XXXXX is registered with the XXXXX to regulate private vocational schools which receive a fee to provide training for persons over 17 years of age).

3. In a ruling dated February 22, 1999, XXXXX ruled that XXXXX is a "vocational school" within the definition set out in section 1 of Part III of Schedule V to the Excise Tax Act ("the Act").

4. XXXXX offers several different programs. XXXXX XXXXX is a six month, full time course. XXXXX is offered to individuals of all ages, but if an individual is under age 19, he or she must have completed secondary school or the equivalent in order to be admitted to the program. Tuition for admission to the program is approximately XXXXX[.]

5. To complete the XXXXX, a student must participate for a combined total of XXXXX specified courses and undergo a series of tests evaluated on a pass/fail basis.

A student must pass a written examination and submit an acceptable plan of action for the steps they will take to obtain an audition for a part in the movie production after they complete the program. The written examination is administered to test a student's basic on-set vocabulary. Instructors further grade a student's on-camera stage performance and etiquette in a cold-read audition as well as the student's display of his or her range of emotions as an actor. Students are not awarded a diploma until they pass all components tested. It may be necessary for some students to repeat specific courses in order to achieve the standard necessary to receive a diploma. The diploma received for this program indicates that the student has skills to audition for a part in a film production.

6. In addition to the XXXXX individual courses from the XXXXX are offered to students on a part-time basis. Students who cannot afford to go to school full-time, previous students returning to school to hone their acting skills in order to prepare for auditions with casting directors, and students repeating specific courses in order to qualify to receive a diploma may take one or more courses from this program.

7. XXXXX also sponsors optional workshops that are offered to students outside of the XXXXX hires a workshop instructor (for example, a casting director, an actor, etc.) to teach the workshop. Students register for the workshop with the XXXXX registrar and make all fees payable to XXXXX[.] The workshops are held on XXXXX premises. XXXXX collects all fees from the student and pays a pre-determined amount to the workshop instructor for his or her services.

Ruling Requested

What is the application of the GST to the various programs offered by the XXXXX[,] the XXXXX individual courses and workshops)? That is, does the exemption in section 8 of Part III of Schedule V to the Act ("section 8") apply to any of these programs?

Ruling Given

Based on the facts set out above, our ruling is as follows:

XXXXX

The courses offered as part of the XXXXX are exempt supplies pursuant to section 8 of Part III of Schedule V to the Act.

XXXXX

Supplies of the individual courses which are included in the XXXXX but may be taken on a part-time basis are exempt, pursuant to section 8 of Part III of Schedule V of the Act.

XXXXX

Supplies of the optional workshops offered outside the XXXXX are subject to the GST at the rate of 7%.

Analysis

Section 8

Section 8 of Part III of Schedule V to the Act exempts:

"A supply, other than a zero-rated supply, made by a school authority, vocational school, public college or university of a service of instructing individuals in, or administering examinations in respect of, courses leading to certificates, diplomas, licenses or similar documents, or classes or ratings in respect of licenses that attest to the competence of individuals to practice or perform a trade or vocation where

(a) the document, class or rating is prescribed by federal or provincial regulation;

(b) the supplier is governed by federal or provincial legislation respecting vocational schools; or

(c) the supplier is a non-profit organization or public institution."

Policy on Section 1

The definition of "vocational school" is defined in section 1 of Part III of Schedule V to the Act as follows:

'"vocational school" means an organization that is established and operated primarily to provide students with correspondence courses, or instruction in courses, that develop or enhance a student's occupational skills.'

As noted in Fact 3, above, the XXXXX as ruled that XXXXX a "vocational school" for GST purposes. This office has reviewed XXXXX submission and obtained additional information on the matter during a telephone conversation with you on July 22, 1999. This office confirms that the criteria for qualification as a "vocational school", as defined in section 1 of Part III of Schedule V to the Act, has been met. Policy Statement No. P-229, entitled "Definition of Vocational School in Section 1 of Part III of Schedule V", outlines the Department's policy with respect to this provision. The criteria outlined in the policy are discussed below.

(1) Established Primarily

Policy Statement No. P-229 explains that a qualifying vocational school be established primarily to provide courses that develop or enhance a student's occupational skills. To determine this, the Department will review the organization's governing documents. When these documents are not available or are not determinative, the Department will look to the activities of the organization (i.e. the extent to which the organization provides courses that develop or enhance students' occupational skills) as evidence of the purpose of its establishment.

Also, where an organization is governed by provincial legislation respecting vocational schools, this will be considered an indication that one of the main purposes of the organization is to provide vocational training. However, registration with a province as a vocational school is not in and of itself conclusive evidence that an organization is "established primarily" as a vocational school for the purposes of the Act.

We have reviewed the documents submitted and noted that XXXXX is registered with the XXXXX which regulates private vocational schools in that XXXXX[.] We are satisfied that this criteria has been met.

(2) Operated Primarily

The Department will consider this test to be met if more than 50% of an organization's total annual revenues are derived from tuition for courses, or may be attributed to the provision of instruction in courses, that develop or enhance a student's occupational skills.

Grants and contributions received from governments to provide occupational training courses to individuals, and revenues earned from the provision of property or services related to providing occupational instruction will be included in this revenue calculation. For example, this could include revenues from textbook sales and locker rentals.

In the telephone conversation of July 22, 1999, you advised that more than XXXXX[.] Therefore, we can advise that this criteria is met.

(3) Develop or Enhance Occupational Skills

To be considered a vocational school, the courses offered by the organization must develop or enhance students' occupational skills. On this basis, "occupational courses" must have a direct link to skills that are essential for an individual to gain or retain employment. (The Department does not consider that courses in sports or hobbies develop or enhance a students' occupational skills). The Department will examine the curriculum and promotional material of the organization to determine whether courses offered "develop or enhance occupational skills".

A review of XXXXX submission indicates that this criteria is met.

Policy on Section 8

The Department's policy with respect to section 8 clarifies the meaning of "courses leading to certificates, diplomas, licenses or similar documents, of classes or ratings in respect of licenses, that attest to the competence of individuals to practise or perform a trade or vocation". Each of the criteria is discussed below.

(1) Certificate, Diploma, License of Similar Document

To meet this requirement, the Department accepts any document that indicates that the student has successfully completed the course of study to which the document relates. Generally, courses for which some form of documentation is not issued do not satisfy this requirement.

(2) Trade or Vocation

To meet this requirement, the course must have a direct link to skills that are recognized as relating to the ability to gain or retain employment. Generally, this requirement is not met by taking courses in sport, games or hobbies or other recreational or cultural pursuits, or courses designed for personal interest.

(3) Attest to the competence of individuals to practise or perform a trade or vocation.

This requirement relates to three broad categories of courses and the requirements for each category are discussed below.

(a) Courses that are part of a full-time program.

An individual course is considered to attest to the competence to practise a trade or vocation if:

(i) the course is offered as a credit in a full-time program offered by the same institution; and

(ii) the full-time program is offered on a pass/fail basis, based on the evaluation of the student's performance on a single, or series of, tests, graded materials or projects.

Single courses that are part of a full-time program are exempt when taken on their own, even where the individual is not enrolled in the full-time program. The fact that the single course may be applied towards the requirement of the full-time program is sufficient for the course to be exempt under section 8.

(b) Part-time or upgrade courses that are not part of a full-time program.

If these courses are not part of a full-time program, they may be exempt if they meet criteria (1) and (2) above and the competence of the students is evaluated on a pass/fail basis, based on a single or series of tests, grade materials or projects.

Courses that assign a pass/fail mark based on attendance alone, class participation alone or a combination of attendance and class participation do not lead to certificates that attest to the competence of individuals to practise a trade or vocation.

(c) Preparatory courses for federally or provincially administered licenses.

Such courses will be exempt under section 8 where:

•   the course is required by federal or provincial legislation;

•   the course is not required by federal or provincial legislation, but the certificate issued by an educational institution on completion of the course is accepted by a federal or provincial licensing body in lieu of successful completion of the federally or provincially administered licensing exam.

•   the course is not required by federal or provincial legislation, but it meets the requirements for part-time courses outlined above (i.e. the course is offered as part of a full-time program that is offered by the same institution and is exempt under section 8 or the course evaluates students on a pass/fail basis, based on evaluation of the students performance on a single, or series of, tests, graded materials or projects).

Optional Workshops

Supplies of the optional workshops, made by XXXXX to the student, are not exempt pursuant to section 8 and its administrative policy, Policy Statement P-231, for the reasons which follow. First, students do not receive any certificate, diploma or similar document on successful completion of the workshop. Also, the criterion that documentation "attest to the competence of individuals to practise or perform a trade or vocation" is not met as the workshops are not evaluated on a pass/fail basis, based on the evaluation of a student's performance on a single, or series of tests, graded materials or projects.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9215.

Yours truly,

Pauline Greenblatt
Technical Analyst
Educational Services and Indians Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate